China steel, iron ore fall again as curbs bite, but slide seen short-lived

16 August 2017

Steel and iron ore futures in China fell for a third day in a row on Tuesday, hitting their lowest in more than a week, as investors cashed in on recent rapid gains after the Shanghai exchange hiked fees to tame speculative trading.

But analysts say the retreat could be fleeting, with steel demand in the world's top consumer expected to remain strong as Beijing sustains infrastructure spending. Both steel and iron ore futures ended well off the day's lows.

The most-active rebar on the Shanghai Futures Exchange closed down 2.3 percent at 3,747 yuan ($561) a tonne. The construction steel product, which touched a 4-1/2-year high last week, hit a session low of 3,695 yuan, its weakest since Aug. 4.

The Shanghai bourse said on Friday it would hike transaction fees and imposed limits on intraday positions on non-member firms and clients on some rebar futures contracts beginning on Tuesday.

Chinese exchanges, including Dalian, Shanghai and Zhengzhou, imposed a series of similar curbs in 2016 to stamp out speculative trading that bloated prices and trading volumes across commodities from steel to rubber.

The trading curbs worked in taming prices and trading volumes in the past "so I suspect they're doing the same today," said ANZ commodity strategist Daniel Hynes.

Investors were responding by liquidating holdings to lock in some of the past month's gains, but the selloff in steel and its raw materials should be short-lived, Hynes said.

China's steel "demand is still looking positive as the infrastructure side is still quite strong and China's going to see above-trend steel production over the medium term," he said.

As steel margins strengthened, China's crude steel output rose 10.3 percent from a year ago to a record 74.02 million tonnes in July.

Iron ore on the Dalian Commodity Exchange closed 0.9 percent lower at 530 yuan a tonne, having touched a two-week trough of 518.50 yuan initially.

Iron ore for delivery to China's Qingdao port .IO62-CNO=MB slipped 0.6 percent to $74.71 a tonne on Monday, according to Metal Bulletin.